Saturday, June 22, 2013

U.S. economy hangs tough, but for how long?

In
the face of the uncertainty that’s currently roiling the financial market, and
despite growing economic weakness in Europe and Asia, the U.S. economy remains
firm against all odds.

Granted
this could change later this year, especially as the Kress cycle-induced
deflationary wave makes its way from Europe and Asia to U.S. shores. For now, though, the U.S. retail economy is a
picture of stability as reflected by the New Economy Index (NEI).

The NEI is a real-time measure of how the
U.S. economy is performing. It’s
comprised of the stock prices of the leading retail, business service and
transportation companies and employment agencies. It measures every vital aspect of the domestic
economy; it’s shifting fortunes are gauged by the relationship of the NEI price
line to the 12-week and 20-week moving averages.

Presently
the NEI remains above both key moving averages and also above the
intermediate-term uptrend line, as shown in the following graph. The index hasn’t given an economic “sell”
signal since the spring of 2010 (which was a temporary blip following the
“flash crash”). NEI has so far managed
to capture every major and minor turning point in the U.S. economy since its
inception in 2007.

What
NEI is showing us is that while U.S. consumers as a whole are still spending,
especially those in the upper income scale, their aggregate level of spending
is somewhat diminished since peaking in January of this year. Luxury goods sales on the other hand are
currently at levels not seen since before the credit crisis, as are new home
purchases. I anticipate this trend will
change later on this year as the overseas economic slowdown eventually makes
its presence felt in the U.S. According
to the economists at Kiplinger, “Manufacturers will continue to bear the brunt
of a global slowdown, with factories likely to shed more jobs and cut more
output by summer’s end.”

For
now, the economy’s good fortunes remain intact despite financial market
volatility. The million dollar question
is how much longer will it be able to maintain this strength as the super cycle
deflationary wave heads closer to home?